What the COBRA Subsidy Means for Employers

The American Recovery and Reinvestment Act of 2009 signed into law February 17 expands COBRA in ways that will certainly impact employers. Most significantly, the act offers assistance-eligible individuals a 65 percent subsidy of their required COBRA premiums and an additional enrollment period within which to elect COBRA coverage.

Under the provision, the federal government will provide the subsidy for up to nine months for workers who lose health coverage as a result of being involuntarily terminated between September 1, 2008 and December 31, 2009 and who are eligible for COBRA coverage benefits, and their dependents.

The COBRA subsidy becomes applicable March 1. Assistance-eligible workers will receive a notice within 60 days of enactment that will outline the steps and requirements necessary to get the subsidy. We are awaiting government requirements for the forms and notices. These requirements are expected by mid-March. COBRA participants should pay their March premium as invoiced, and an adjustment will be made and the adjusted premium will be invoiced for future payments. The 65 percent subsidy will be applied retroactively, if applicable, from March 1.

Plan sponsors of all group health plans, multi-employer plans (and federal plans subject to comparable) COBRA laws will bear the brunt of administering the new provisions and will need to work closely with their COBRA administrators to ensure compliance. In addition, groups under 20 employees will also have responsibilities because the new subsidy is applicable to small groups and church plans covered by comparable state continuation laws.

On February 20, 2009, the Internal Revenue Service released a revised Form 941, the form for employers’ quarterly tax return on which employers report payroll taxes. Instructions for Form 941 were also revised. See lines 12, 12a, and 13 of Form 941 and pages 1, 2, and 6 of the instructions for directions for reporting credits to recover COBRA premium subsidies.

The Employee Benefit Security Administration (EBSA), the part of the Department of Labor (DOL) that administers federal labor laws regulating employee retirement and health plans, recently unveiled a Web site dedicated to the COBRA premium subsidy. No guidance is posted on the site yet, but it is anticipated that DOL guidance will be posted to the site as it is released.

The Department of Labor is required by H.R. 1 to conduct expedited reviews of denials of premium assistance (§ 3001(a)(5)). The Web site states that “The Department is currently developing a process and an official application form that will be required to be completed for appeals.”

The Web site also says that “EBSA is actively working to issue additional guidance regarding the COBRA premium reductions.” The Department of Labor is also responsible for developing a model notice for use by employers (§ 3001(a)(7)(D)) and outreach consisting of public education and enrollment assistance (§ 3001(a)(9)).